A woman from a pastry startup walks into an office full of potential customers to conduct customer development interviews. She asks everyone “You told me you often need snacks in the middle of the day. What would be better, if I brought a plate of donuts or a plate of fruit?” Most people tell her they would prefer fruit because it is healthier. On her way out she leaves a plate of each behind as a thank-you gift. She comes back the next day and discovers there are no donuts left, but lots of rotting fruit! What did she learn?
A novice would think they learned that customers lie so there is no point in asking them. A pro realizes the importance of how you ask the question. It is very hard for people to know what they might/would do with any accuracy. If instead you ask what people have done, or give them a situation to make a real choice, then you get much more usable information.
Note that you have two ways to apply this great lesson:
- Before you have a prototype you can ask people what they have done in similar situations in the past.
- Once you have a Minimum Viable Product (MVP), give people a choice between your option and the alternative.
When conducting customer development interviews ask what people have done, not what they would/might do.
Hat Tip to the man who taught me this concept and the entertaining way to remember it: the great Eddie Binder.
There are only a few tickets left for next week’s Lean Launchpad: Pioneer Valley Graduation Celebration & Demo Day. Because of space (and wine :)) seats are limited and only those who RSVP can attend. So if you’d like to join us, RSVP here.
Who is attending: primarily angel investors, mentors, and entrepreneurs who want to see first-hand the results of Lean Launchpad training. Get more details here.
What are the Metrics That Matter for your venture? No… not the vanity metrics that so many of us were taught to pay attention to. What are the metrics that actually show you if your venture is on the right track?
I watch my students struggle with this a great deal. I’d like to offer some patterns that can serve as a starting point to anyone considering these questions.
- Cost to acquire/get a customer helps you evaluate different channels for their relative value, shows you when your website is doing a terrible job of converting visitors into contacts, steers you towards labor-efficient/scalable techniques, etc.
- Sales & marketing costs: out-of-pocket + labor (assume a market-rate labor cost so you do not underestimate labor-intensive marketing channels)
- # hits to your website, # of cold calls
- % that convert to contact you, % that meet with you
- % that purchase
- Cost to keep/retain a customer helps you spot when you are using unsustainable customer service / product delivery procedures.
- Cost of customer service team, returns, refunds, etc.
- # of customers
- Lifetime value of a customer helps you think about customer retention and how to grow revenue from existing customers by keeping them longer or by solving other problems for them via new products.
- % of customers who renew
- Revenue per customer
These three metrics, while not all-inclusive, are a fantastic starting point.
Steve Blank‘s Customer Development methodology emphasizes that startups need to seek “earlyvangelists,” potential customers who’s “hair is on fire.” Great image! Makes sense when you hear it! Then you try to find such customers and… their hair is not literally on fire so you struggle to apply the concept!
Here is a definition that my students find helpful (adapted from Steve Blank’s work):
A Customer’s “Hair is on fire” when they are in so much pain that they are already spending time and/or money on some hodgepodge solution that you are superior to?
Tag lines – they should follow the same rules as elsewhere in your presentation. “Don’t tell me about your lawn fertilizer, tell me about my lawn.“
Bad tagline: “All inPlay – Multiplayer online video games for the visually impaired and their friends & family.” – This emphasizes FEATURES. Why do we care that these are multiplayer online games?
Good one: “All inPlay – Allowing the visually impaired to play and interact with their friends and family unhandicapped and as equals.” – This emphasizes the benefits making it clear to anyone why this company is valuable.
Almost every startup I work with has a hard time keeping Pains, Gains, and Features separated in the heads. This is a natural challenge, but overcoming it is critical!
* Impact your customer’s ability to Get/Keep/Grow their own customers
* Impact your customer’s cost structure negatively (may hurt their profit margins, may create inconvenient cash flow situations, etc).
* For consumer-facing startups, pains can also impact a core emotion.
But don’t confuse that with HOW you solve the problem.
Example 1: Let’s imagine a consultant offering supply chain management solutions. But Supply chain management isn’t the PAIN, it is a set of FEATURES. His customers don’t have an amorphous “supply chain management issue.” They have issues like…
* Cost structure >> paying too much for supplies
* Cust. Relationships: GET >> time it takes to get supplies makes our turn-around time slow, meaning we are losing market share to faster competitors
* Cust. Relationships: KEEP >> supplies that showed up from china are WRONG, so we’re going to miss our promised deadline to our customer… possibly costing us the customer
Example 2: A consultant to retirement centers helping their staffs better communicate with hard of hearing clients. Training on how to communicate with hard of hearing people is a FEATURE. Her customers don’t wake up thinking they have a core business problem with that. But they do worry about…
* Cost structure >> High employee turnover due to frustration w/ communicating with our clients means we spend a lot of time & money training new people, lowering the productivity and profitability of our company.
* Cust. Relationships: GET >> Word is getting out that we yell at our patients, which is turning of the high-end families we really want to attract…
* Cust. Relationships: GROW >> Because we can’t communicate clearly to our hard of hearing patrons, we can’t up sell them any of the great offerings we have available for them and they are less likely to refer friends to us.